Portugal Shifts to Bank Resolution Fund; Revises Loan Terms

By kleyraustria

Sep 29, 2016 05:59 AM EDT

The world banking industries was suprised when Portugal Banks, through its finance ministry informed world trade that its state loans have changed to resolution fund. Along with this manifestation are new arrangements such as extending loan maturities and a protection for the bank against extraordinary payments for the funds.

"The revision of the terms of the contract (on the loans) is backed by the European Commission and reduces uncertainty over the yearly responsibilities of the banks in the future, independently of the contingencies that may arise for the fund," claimed the ministry.

This bank resolution fund received 3.9 billion euros for the 4.9-billion-euro rescue of indebted Banco Espirito Santo (BES) in 2014 from the government. Said bank is formally owned by Portugal's banks which pay interest of the loan.

Opting for a new beginning, Novo Banco which is a new bank was put into life out of BES and is the one which took over the old bank operation and dealings. However, as of press time, Novo Banco, eventhough expected has not yet been sold. This just means that the state is still on a gross state of its indebtedness.

This failure to sell Novo Banco has pushed the Portugal's banking sector face rising costs over the running times. If Novo Banco does not reach 3.9 billion euros, other banks would have to fill any possible shortfall in the sales price the said bank.

Thus, the culprit should be resolved as soon as possible for the longer time that no details are given for the new terms of the loans, the agreement will prolong the maturities of the loan to the resolution fund. This will cause to allow banks to continue paying what they currently pay.

"The revision of the conditions of the state loan to the resolution fund is another measure aimed at ensuring financial stability and reinforcing the capitalization of Portuguese banks," the ministry furthered.

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